Hospital financing reform and case-mix measurement: an international review

Health Care Financing Review, Summer, 1992 by Miriam M. Wiley

England

The National Health Service (NHS), financed mainly from general taxation, continues to provide the framework for health care provision in England. Working for Patients, published in 1989, presented a blueprint for reform of the way in which the NHS was organized, and legislation enacted in April 1991 has given legal effect to the main provisions of these recommended reforms.

With regard to the acute hospital sector, in particular, the most far reaching change is the separation of the roles of purchaser and provider of hospital services. There are a number of different ways in which this new type of relationship may be defined, though in each case the hospital fulfills the role of service provider within price and quality controlled service contracts agreed with the purchasing agent. District health authorities may act as the purchasing agent of hospital services and enter into contracts with designated service providers for a defined and costed range of services. In addition, general practitioners (GPs) in practices fulfilling particular conditions may choose to become "fundholders." This means that they adopt the role of purchaser on behalf of their patients and enter into contracts with hospitals for the provision of required services. Fundholding GPs have an incentive to secure contracts for hospital services at the lowest cost because any surplus earned on the budget assigned can be retained for improvements within the practice. Any budget overspend by GPs will result in the withdrawal of fundholding status from the practice. The final optional configuration within this purchaser/provider dichotomy is for particularly well managed public hospitals to withdraw from control by the district health authority and choose to become independent self-governing trusts. Trust hospitals will still, of course, have to enter into contract with purchasers like district health authorities and GP fundholders for service provision.

With the enactment of the reform legislation in April 1991, "57 NHS hospitals and units became self governing trusts, 306 GP practices became fund holders, all districts had separated their purchasing and providing functions and most had finalised contracts with hospital providers" (Organization for Economic Cooperation and Development, to be published [a]). While there are current plans to expand the number of trust hospitals and GP fundholders in 1992, the emergence of problems for some large teaching hospitals in the London area led to an inquiry at the end of 1991 and the temporary suspension of setting up any further trusts in the area.

Many interesting issues are raised by this latest reform of NHS, some of which are dealt with in an extensive review by OECD (1992b). Of particular interest to the investigation here is the fact that, according to Sanderson (1991) "This new contracting environment has created the potential for a new role for case mix measures." An interest in this area is not unique to this recent reform as issues concerned with case-mix measurement and application have featured as an integral part of the Department of Health's resource management project since the early 1980s. In the intervening decade, extensive research activities have been supported and involved analysis and application of a range of case-mix measures, including DRGs. While the reported evidence "suggests that UK data can be successfully grouped into DRGs and that the resultant groups are medically valid and resource homogeneous" hospitals have complete discretion in the application of case-mix measurement and the case-mix measure of choice (Mills, 1989).